SEC Subpoena vs. Grand Jury Subpoena: Key Differences.

SEC subpoenas originate from civil inquiries by the SEC under the Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940, Investment Company Act of 1940, and other relevant statutes. SEC subpoenas generally require the production of books, papers, and other records; oral testimony under oath; or both. These civil investigations can lead to administrative enforcement proceedings, civil litigation, or civil subpoenas for documents and testimony.

By contrast, a subpoena issued to a federal grand jury serves to support the federal government’s criminal investigation. Grand jury subpoenas generally seek to compel testimony before the grand jury, either on its own or in conjunction with the production of tangible evidence. While SEC investigations focus on civil securities-law violations, grand jury investigations focus on criminal violations of federal statutes, including those related to securities fraud and other white-collar crimes.

Despite these differences, there are some important similarities between SEC subpoenas and federal grand jury subpoenas as well. Most notably, neither SEC subpoenas nor grand jury subpoenas establish the existence of a criminal charge, indictment, or finding of wrongdoing. Similarly, neither an SEC subpoena nor a grand jury subpoena establishes the recipient as a “target,” “subject,” or “witness” in the federal government’s investigation, although these are important distinctions in criminal cases, and knowing your status under federal law is critical.

Additionally, both SEC investigations and grand jury proceedings are generally kept confidential, although for different reasons. SEC investigations remain nonpublic as a general matter pursuant to 17 C.F.R. §203.5. Grand jury secrecy, on the other hand, is protected by Federal Rule of Criminal Procedure 6, which governs the composition of the grand jury, the confidentiality of its proceedings, and the limitations on when and how grand jury information can be disclosed.

Who issues SEC and grand jury subpoenas?

There are some important procedural differences between SEC subpoenas and federal grand jury subpoenas as well. For example, Exchange Act §21(b) authorizes the SEC to use subpoenas to investigate securities-law violations. However, the SEC staff can only use this subpoena power after the SEC has issued a formal investigation order. Issuing a formal SEC investigation order does not require a prior probable-cause determination, and the order typically grants the SEC’s Division of Enforcement the authority to issue subpoenas to gather information pertaining to potential violations of the Securities Exchange Act, the Investment Advisers Act, the Investment Company Act, and other applicable statutes.

Once the Commission has entered a formal order of investigation, the SEC can issue subpoenas without a prior court order, whereas a grand jury subpoena issued under Federal Rule of Criminal Procedure 17 requires the grand jury to be convened by a federal court. The grand jury is convened by the issuance of a grand jury summons to qualified citizens in the district where the grand jury is meeting. The summons, which is issued under the court’s seal, provides the grand jurors’ dates and times for meeting.

Similar to the SEC’s enforcement division, the grand jury’s role in gathering evidence and testimony is to assist government attorneys in determining whether criminal charges are warranted. Under Rule 17, the clerk of the federal court issues grand jury subpoenas under the court’s seal. These subpoenas may be blank, in which case the prosecutor or government attorney will complete them as needed and maintain custody of the signed subpoenas.

• In Exchange Act investigations, the Commission or its designated officer (typically, the Division of Enforcement’s Director or an assistant director) formally issues the Exchange Act §21(b) subpoena.
• For Securities Act investigations, the SEC’s subpoena power is granted under Securities Act §19(c).

How can I challenge an SEC subpoena?

When served with an SEC subpoena, you should call a federal securities fraud defense attorney immediately. It is important to determine what the scope of the subpoena is and what the government’s intent is. With this information, the attorney can evaluate your options and promptly advise you on the next steps. Along with taking the appropriate action to protect you as needed, your attorney will be able to deal directly with the SEC and gather further information on your behalf.

Depending on the circumstances, you may need to challenge the SEC subpoena. Along with your attorney, this may be your first option, or it may be a necessary measure if the SEC continues to press for incriminating evidence. If you must challenge an SEC subpoena, it may be necessary to move to quash it, or to seek a protective order to limit the scope of the subpoena.

If you are served with a grand jury subpoena, you should contact a white collar criminal defense attorney as well. Your attorney will be able to determine if the subpoena is valid and whether any additional measures are required. When appropriate, your attorney will contact the DOJ or the relevant prosecutor, and work toward resolving the matter as efficiently as possible.

Grand jury subpoenas are typically more difficult to challenge than SEC subpoenas. However, there are various options available if challenging a grand jury subpoena is necessary. For example, if you need to challenge your grand jury subpoena, a federal grand jury defense attorney can evaluate if any of the following issues (among others) exist:

• Overbreadth and Undue Burden: One of the most common grounds for challenging a grand jury subpoena is that the subpoena is overly broad or imposes an undue burden. Overbreadth concerns apply primarily to a subpoena that demands production of “books and records” and all other relevant tangible evidence, whereas undue burden concerns apply more broadly to any grand jury subpoena.
• Fifth Amendment Concerns: The Fifth Amendment provides protection against self-incrimination, and this applies regardless of whether you are the target of a grand jury investigation.
• Attorney-Client Privilege: The attorney-client privilege is also a key aspect of grand jury defense, and it may protect your attorney’s disclosures to a grand jury, among other information.
• Other Privileges: Other types of privileges can also protect sensitive information, including work-product and, where applicable, journalist privileges.

How Can I Challenge a Grand Jury Subpoena?

When it comes to compelling the production of documents and testimony, grand jury subpoenas involve several important considerations:

Nationwide Service

Rule 17(e)(1) provides that grand jury subpoenas may be served anywhere in the United States. If you are outside the grand jury’s district, you may still be served with a grand jury subpoena.

Quashing Grand Jury Subpoenas

With regards to compelling the production of documents and tangible evidence, Rule 17(c)(2) provides that a federal district court may quash a grand jury subpoena if, upon motion, “it finds that the subpoena is unreasonable or oppressive.”

Objection Deadlines

There is no universal 14-day deadline to object to a grand jury subpoena issued under Rule 17. While a 14-day deadline exists for subpoenas issued under Civil Rule 45, this is not applicable in the context of a grand jury subpoena.

Dispute Resolution

All disputes involving federal grand jury subpoenas are resolved before the federal district court that is supervising the grand jury.

Contempt Risks

Disobedience of a grand jury subpoena can lead to a finding of contempt under Rule 17(g). This applies even if you have objections to the enforcement of a grand jury subpoena. As a result, recipients of grand jury subpoenas must take appropriate legal measures to challenge their subpoenas, rather than ignoring the subpoenas.

Privilege Objections

Objections based on a claim of privilege, including attorney-client privilege, work-product privilege, accountant-client privilege, and others, do not justify ignoring a grand jury subpoena. Instead, privilege-based objections require identifying the particular document or testimony that is protected.

There are also certain types of information that the federal common law generally recognizes as nonprivileged. For example, the federal common law generally recognizes no privilege for ordinary physician-patient communications. This can lead to disclosure of sensitive and private information when testifying before the grand jury.

Spodek Law Group, led by managing partner Todd Spodek, defends clients in federal criminal and white collar matters.

Can My Lawyer Attend SEC or Grand Jury Testimony?

If you are facing a grand jury subpoena or if you are being compelled to testify as part of an SEC enforcement investigation, there are important things to understand about the role of your lawyer during your testimony.

Grand Jury Witnesses’ Counsel

When testifying before a federal grand jury, a witness’s counsel is not permitted to enter the grand jury room. While this is not unusual, it can be intimidating, and the witness’s lawyer cannot provide advice during the testimony. Government lawyers will question the witness appearing before a federal grand jury. However, the grand jury witness will typically be allowed to leave the room to consult with his or her lawyer.

Compelled Witnesses’ Counsel during SEC Exams

Unlike in a grand jury proceeding, SEC enforcement staff conduct the compelled investigative examinations in private. A compelled witness’s lawyer can, however, be present during an SEC investigation and provide advice to the witness during the examination. At the conclusion of an SEC examination, the lawyer may also ask any brief clarifying questions. Counsel may not, however, otherwise participate in the examination.

Asserting Fifth Amendment Privilege during SEC Exams

Securities fraud investigations are civil in nature. Even so, a witness’s Fifth Amendment privilege against self-incrimination still applies during SEC investigations. However, while a witness’s Fifth Amendment privilege may be asserted in civil cases, the civil courts may also draw an adverse inference from the witness’s invocation of his or her Fifth Amendment privilege. This is a key distinction between SEC investigations and criminal cases, where the privilege against self-incrimination is critical and cannot be used to find a witness guilty of a crime.

Asserting Fifth Amendment Privilege during Grand Jury Proceedings

If you are testifying before the grand jury in a criminal securities fraud investigation, the same Fifth Amendment privilege against self-incrimination applies. Unlike in SEC investigations, the prosecutor or other government lawyers cannot use your invocation of your Fifth Amendment privilege against you. When appropriate, it will be critical for you to exercise your Fifth Amendment privilege to protect yourself against self-incrimination in a criminal case.

Which of These Is More Serious?

Grand jury subpoenas are issued in the context of criminal investigations; SEC subpoenas, on the other hand, are issued in the context of civil investigations. While it is not unusual for an SEC subpoena to follow a grand jury subpoena, this is not always the case. If you have been served with either subpoena, it is important to contact an experienced federal securities fraud defense attorney. The attorney will be able to gauge the severity of the situation, determine the scope of the investigation, and advise you on the best strategy to protect yourself going forward.

Does a Grand Jury Subpoena Mean Charges Are Coming?

A federal grand jury contains between 16 and 23 grand jurors. At least 12 of the grand jurors must concur in order to indict someone. While this is a grand jury’s primary responsibility, to determine whether probable cause exists to issue criminal charges, it also serves additional roles. For example, it may issue a report to the federal court that issued the grand jury’s summons, and it may also make a recommendation to the federal judge. Importantly, grand juries do not determine guilt or impose punishments in criminal investigations, as these matters are reserved for the subsequent trial phase.

Federal grand juries are bound by confidentiality under Rule 6(e). The obligation of confidentiality generally extends to grand jury investigators, such as prosecutors and other government attorneys. It also extends to grand jurors, and to anyone who assists in these investigations.

However, grand jury confidentiality under Rule 6(e) generally does not bind subpoenaed witnesses. When responding to a grand jury subpoena, a subpoenaed witness can (and should) carefully evaluate the risks and benefits of disclosing information. It can also be necessary for a subpoenaed witness to object to the production of incriminating records and testimony when appropriate.

Could You Be the Target or Subject of a Federal Grand Jury Investigation?

A grand jury subpoena can be served to a party who is not involved in the alleged wrongdoing. This include records custodians and witnesses. However, a grand jury subpoena could also be served to the target or subject of the federal government’s investigation.

The DOJ Manual defines a “target” as a “person who is the putative defendant in the grand jury’s investigation and as to whom the prosecutor has substantial evidence linking him or her to the crime(s) being investigated.” It defines a “subject” as “a person whose conduct falls within the scope of the grand jury’s investigation.”

Determining whether you are the target or subject of a federal grand jury investigation is a key first step in building a successful grand jury defense strategy. If you have been served with a grand jury subpoena, an experienced federal securities fraud defense lawyer at Spodek Law Group can quickly determine if you are the target or subject of the federal government’s investigation.

Can an SEC Subpoena Lead to Criminal Charges?

While an SEC subpoena is civil in nature, the SEC can still transmit any suspected criminal violations it uncovers to the Attorney General. The Attorney General can then decide whether to refer the case to the Department of Justice (DOJ) for criminal prosecution. SEC and DOJ investigations can run concurrently or even sequentially. If you are currently responding to an SEC subpoena and the SEC decides to refer the investigation to the DOJ, it is vital to prepare for an impending criminal investigation, and your securities fraud defense attorney will be able to help you every step of the way.

Whether you are facing an SEC subpoena or a grand jury subpoena, there are various issues that will play a key role in your defense, including:

Evidentiary Concerns

Any evidence the SEC lawfully obtains during an SEC enforcement investigation can be used in a subsequent criminal prosecution in many cases. However, compelled testimony given during an SEC investigation may not be used as evidence against the compelled witness in a later criminal prosecution. The same Fifth Amendment protection also applies to federal grand jury investigations. However, the Fifth Amendment generally does not protect records or other tangible evidence that the witness voluntarily created.

Additionally, when organizational custodians are compelled to produce records of a legal entity they represent, the custodians’ personal Fifth Amendment rights (if any) cannot be used to withhold records belonging to the organization.

Privilege Objections

Your attorney will also be able to evaluate if any privilege objections apply to the production of records or testimony. For example, the attorney-client privilege can protect qualifying communications in both civil and criminal investigations. Your attorney can examine your subpoena for issues that may lead to a successful objection, including:

• Overbreadth and Undue Burden
• Attorney-Client Privilege
• Other Privileges
• Confidentiality

Fifth Amendment Objections

Determining whether to exercise your Fifth Amendment privilege against self-incrimination will also be critical for your defense. When appropriate, you will not need to produce incriminating records or testify before a federal grand jury or at an SEC investigation.

You may also need to exercise your Fifth Amendment privilege against self-incrimination to avoid answering questions in your testimony. While there are various consequences to invoking your Fifth Amendment privilege, your attorney can advise you on the risks and benefits of exercising this constitutional privilege in your case.

Avoiding Potential Prosecution for Spoliation

While facing an SEC subpoena or a grand jury subpoena, it will also be critical to ensure that you preserve all records and other relevant tangible evidence. Destroying responsive documents, or otherwise spoliating evidence, may expose you to criminal prosecution for obstruction, independently of the alleged conduct underlying your subpoena. Destroying evidence may also justify imposing an adverse inference against the witness in a subsequent civil or criminal case.

A federal securities fraud defense attorney can help you avoid additional criminal exposure due to document destruction or other forms of spoliation. Your attorney can implement procedures to ensure all records and other relevant tangible evidence are preserved.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.